Investing and saving for retirement, a rainy day, or just to pad your nest egg is essential for achieving financial security. But PFIC (Passive Foreign Investment Company) taxation and IRS Form 8621 for reporting non-US investment funds (like ETFs or mutual funds) creates an unnecessary burden for ordinary middle class Americans abroad just trying to engage in responsible financial planning.
IRS rules on how non-US investment funds are taxed and reported simply don’t take into account the reality Americans abroad face. It’s so confusing that just determining whether a non-US investment is a PFIC requires an in-depth legal analysis that no individual of ordinary means could possibly do themselves, and support from the IRS for reporting these investments is non-existent.
This is a critical opportunity for your voice to be heard on why PFIC Form 8621 is confusing, burdensome, and how it affects you as an American abroad just trying to save for your future.
Here’s all you need to do:
- Send an email to [email protected] with the subject “OMB control number 1545-1002”
- Write your comments in the email! The more personal the better.
- Don’t forget to BCC [email protected]
Comments close November 19th, so be sure to submit before the deadline. For more information, see the notice on the Federal Register.
Thanks for your help!!
DA Global Taxation Task Force
https://www.democratsabroad.org/taxation
Please share this with any friend or family member that might be interested in submitting a formal comment!
Do's & Don'ts For Your Submission
Do's
- Share where you’re originally from in the US, your country of residence, how long you’ve lived outside the US, why you originally moved abroad, and what keeps you there. Bonus: add info on how you stay connected to the US (visiting the US, reading the news, etc) and how being an American is part of your identity!
- State the name of the non-US investment products in your country of residence that you have difficulty reporting on Form 8621.
- Share the problems you’ve had with getting clarity on how to save and invest in non-US investment funds as an American abroad.
- Share how much time you spend on reporting or how much money you have to pay a professional to help you report your investments on Form 8621.
Don'ts
- Ask for residency based taxation (The IRS can't make RBT happen, so ask your Members of Congress for that!)
- Ask for changes to how non-US investment funds are taxed (this comment period is only for Form 8621 reporting)
Share your story with the IRS during their public comment period! You have until November 19th. The more personal the better.
Below are a few example statements.
Example 1
My name is John, I am originally from New York and have lived in Denmark for 15 years. I moved abroad because I studied a few semesters abroad in Denmark but then I met someone, fell in love, and as they say, the rest is history. I am proud to be an American, I vote in US elections and try to visit my family in the US whenever I can. But my ability to save and invest where I live is severely limited by PFIC taxation and difficulty completing Form 8621.
A few years ago, I bought some index funds from my local bank where I also have my checking account and mortgage. I thought I was being responsible when I started putting away 5% of my salary every month into low-cost diversified index funds; it turned out that was a big mistake! When I sold the funds years later and realized they were reportable on Form 8621, not only did I have to pay additional tax and interest penalties on those investments, I had to pay a tax specialist hundreds of dollars to figure it all out for me! When I asked the tax specialist after this ordeal how I can save efficiently, his response was “as an American abroad, your options are severely limited.”
How is this fair? If I had known that these ordinary index funds were “passive foreign investment companies”, I would have never made these investments in the first place. Please clarify the reporting requirements for PFICs on Publication 54 so no one else has to go through what I did!
Example 2
My name is Kathy, I live in the United Kingdom but was born and raised in Virginia. I met my to-be British husband while he was on a work assignment in the US and after a few years together, we decided to relocate from the DC area to London to be closer to his family. We have two young children who are dual citizens and I am proud to keep the American traditions going like Halloween, Thanksgiving and 4th of July celebrations.
When I opened up a Stock and Shares ISA a few years ago at my bank in London, little did I realize what a disaster I was about to get myself into. The ISA is a tax free account for residents in the UK to allow us to save for our future, but not for Americans! The accountant said I had to make a mark-to-market election which means I would have to pay US tax on unrealized gains, on an account which is tax-free in the UK! I can’t do this reporting myself because the paperwork is way too complicated, so I have to pay hundreds of dollars a year extra to my accountant just for filing form 8621. It’s a struggle to get the paperwork in order because the banks here don’t usually issue the types of records needed to accurately file a form 8621.
I will probably have to close this account to cut my losses and I don’t know how I am supposed to save properly. My kids are only 5 and 7 but eventually they will have to go through this financially crippling reporting mess too when they become adults.
Example 3
My name is Keanu, I’m originally from California but I’ve lived in Spain for 15 years when my company sent me abroad on a 2 year work assignment and then I loved it so much, I ended up staying. I now have a wife and kids here, but I still vote and I still go back home to visit family every year.
Since moving abroad, I haven’t been able to find a way to invest for my family’s future. First, there’s only one investment platform that I’ve been able to find that will take me as a customer in the first place, Interactive Brokers, and none of the robo advisor apps that are advertised here locally will take me due to my US citizenship (they specifically discriminate against American citizens).
Secondly, Interactive Brokers restricts my ability to invest in mutual funds or ETFs, which I was always told were the best options to invest in. When I asked them why, they told me that they’re trying to save me from PFICs. I then looked into it and a PFICs is a non-US “pooled” fund. I can see why they do this, because Form 8621 looks like a nightmare, and from what I’ve heard from other Americans who were able to invest in these, it’s not worth it due to the complicated reporting on the US tax return. So basically, my own government is restricting me from being able to invest and save for my future. I am not a high earner, but there is no reason that I shouldn’t be able to invest $1,000 of my savings in an ETF rather than being forced to invest directly in stocks, which is my only option due to the PFIC restrictions.
Please exempt Americans abroad from the horrible PFIC reporting regime, it’s a nightmare and preventing us from saving for our futures.
By making our voices heard, we can be a part of bringing meaningful change to investing as an American abroad and remove major obstacles that will help us build financial security.